Seeking advice on offer/counter

October 28, 2023

by a searcher from California Polytechnic State University - San Luis Obispo in Irvine, CA, USA

A few days ago I put in an offer at right around $700k. Which for reference was well below asking, but slightly higher than an SBA lender I spoke to advised. I ended up floating the idea of a larger seller note to the broker who shared it with the seller. I got some feedback, adjusted a few terms to suit the seller and formalized the offer.

The offer expired today (I gave them 72 hours, but they already knew the main aspects of the offer a week earlier.

I got a call from the broker 15 minutes before the offer was set to expire saying that the seller wants to counter on one term. The offer I made was about 42% cash up front and 58% seller note. The seller wants to counter at 50%/50%, but still the same total price.

I’m really not sure what to do about this. On one hand, the counter offer change seems highly trivial for the total price, which makes me wonder why he’s making that request and why he waited until the 11th hour. On the other hand, the fact that the seller did counter, but didn’t change the total price does make me think my offer truly was higher than it needed to be and I should concede the 50/50 request but knock the total price down a little.

I would love to here from those of you out there with more experience that can share some advice to keep me on the right course.

p.s. the SBA lender stated that what I offered was too high because the SDE is up about double TTM vs 2021 or 2022 and he would only look at the previous year tax returns. Also my offer is not based on TTM SDE, I heavily discounted this years performance, just not entirely like the lender would.

Reply by a searcher
from INSEAD in Calgary, AB, Canada

From my previous LOI, the deadline is only a guideline and the sellers know that we as buyers aren't going to fully step away if there is a counter. My suggestion is do not read into the timing at all, it is noise. Regarding the counter, it seems a fair counter to want more cash upfront. Remember, submitting an LOI is one of the easier parts of the process as it is non binding. Once accepted the real work begins and the deal can change as you receive new information. Get into DD then you will answer your questions and have an opportunity to adjust terms to fit the reality. Keep going & good luck.

Reply by a searcher
from Columbia University in Madison, NJ 07940, USA

If you really like the business, would the 50/50 make a difference? If it has you thinking, maybe the deal is not as good as you initially thought.

What difference does it make that they waited until the last minute? I am not a big believer in deadlines but in good communication and relationship building.

I would take the deal as in a very short term you would not even remember the extra 8% upfront.

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